What Is a Liquidity Event?

Professor shaking hands with business owner

September 28, 2021

Selling your business or farm can seem daunting—it could have been a lifelong goal to create and eventually sell your business, and the last thing you want is to make a mistake while liquifying your asset. If you’re coming up to a liquidity event, here are six things you should know!

What Is a Liquidity Event?

A liquidity event is changing an illiquid asset into cash—for example, selling your business or farm. You knew approximately how much your business or farm was worth, but you now have the physical money in your account after liquifying it.
There are many moving parts to a liquidity event, so you don’t want to miss anything or make a mistake that could cost you any amount of your hard-earned money. Before you start the process of selling a significant asset, remember to consider these six things.

Get Advice Early

The sooner you get advice for things like legalities and taxes, the smoother your transaction will be. Get the help of an accountant and lawyer familiar with situations like yours.

Decide What the Money Is For

Even substantial amounts of money can dwindle, so creating a plan around what you’ll want to use the funds for is crucial. Planning is key—whether you increase your lifestyle, contribute to charity, leave an inheritance, or a combination of all three.

Prepare for the Psychological Effects

If you’ve invested previously, you know the markets go up and down. The difference after a liquidity event is that the dollar amounts in fluctuations will be larger than you may have been used to in the past. The psychological effects of potentially seeing your account drop hundreds of thousands of dollars can be challenging to manage, but having a solid relationship with your advisor can help.

Understand Market Fluctuations

As mentioned above, knowing that there will be bad years in the markets can help keep you focused and confident in your investment decisions. They will happen, so make sure you plan for them!

Commit to Learning

When you owned your farm or business, you likely put all your effort into learning about how it works, and it’s no different now that you’ve liquified your asset. Of course, you don’t need to be a finance expert, but you will need to make decisions and understand what’s happening with your money.

Involve Your Partner

Keeping your spouse or partner involved in the process isn’t just about maintaining a healthy relationship surrounding money. It’s about giving you both the peace of mind that if something were to happen to either of you, the remaining spouse wouldn’t have the extra stress of trying to understand your financial situation.

Remembering these tips before you start the process of liquifying your asset will ensure it goes as smoothly as possible! If you have any questions about the process, feel free to reach out to me any time.

author avatar
Tre Bynoe

The information contained in this report was obtained from sources believed to be reliable; however, we cannot represent that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any securities. The views expressed are those of the author and not necessarily those of Credential Qtrade Securities Inc. Mutual funds, other securities and securities related financial planning services are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc.

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